This invention relates to servicing of loan portfolios and loan servicing portfolios.
The field of lending money is very complex, and has many different facets. Financial institutions are subject to various legal and regulatory requirements regarding lending, security interests, qualification of borrowers and property for various loan insurance programs, and the like. Among the regulatory requirements are those of RESPA (Real Estate Settlement Procedures Act), HUD (Federal Housing Administration), VA (Veterans Administration), FNMA (Fannie Mae), FHMLC (Freddie Mac), various states, and the like. Furthermore, in order to securetize a collection of loans in a portfolio, the financial institution must assure or guarantee to investors not only full regulatory compliance, but also certain quality of loan statistics for the portfolio being sold or purchased. Investors and investment bankers frequently have special criteria for loan quality and auditing.
The legal and regulatory requirements and investors parameters frequently change, and financial institutions must expend considerable resources to assure that all of their loans are in full compliance with the current applicable regulations.
For mortgage companies to comply with all of the various requirements for the auditing loan originations, the current state of the art is to use a standard checklist, regardless of the type of loan portfolio audit.
When portfolios of loans are sold to investors or are purchased from originators or other investors, audit checklists must be reviewed by several people to insure that each loan complies with currently applicable regulations.
The audit checklists which are in current use are required in primarily three different aspects of this industry: origination of the loan, selling of the loan to investors, and servicing the loan. Although these aspects are separate insofar as they are usually handled by different personnel with different training and skill requirements, they are intererelated insofar as a mistake in one area, e.g., origination, will have spillover effect on another area, e.g., servicing.
Because quality control of each aspect of these processes is so critical, various attempts have been made by others to provide computerized quality control systems, for example the ACES audit system of Engineered Business Systems, Inc., of Coconut Creek, Fla., provides automated loan selection based on user defined criteria, standard checklists, automated underwriting review, and automated tracking of supervisor review. The ACES system does not provide checklists automatically customized to audit sampling criteria, nor a system for auditing servicing portfolios, not a means for storing and reporting on audit recommendations pertaining to exceptions. The ACES system does not address the special needs of loan servicing auditor, where special regulations and audit checklist are required.
The present invention provides in one aspect a client-server computer system for auditing loan and loan servicing portfolios comprising client workstations for use by loan auditors a server on which are stored records for each loan origination and loan servicing in a portfolio, rules which comprise each current and historical legal regulation and any investor-specific parameter, applicable to each type of loan and loan servicing, a set of sampling criteria, a set of questions to determine compliance with each of the regulations and parameters, each question keyed to one or more audit types, a set of selectable audit types, and a computer program adapted to automatically select an audit sample subset of loan origination records or loan servicing records according to one or more selected audit type and the set of sampling criteria, and automatically create and transmit to an auditor client workstation a checklist appropriate to the selected audit type.
In another aspect, the invention comprises computer-assisted method of auditing loan portfolios and loan servicing portfolios wherein loans are of a plurality of types comprising the steps of storing on a server a computer record for each loan in a portfolio; storing on the server rules which comprise each current and historical legal regulation and any investor-specific parameter applicable to each type of loan; storing on the server a set of selectable audit types; storing on the server a set of questions to determine compliance with each regulation or parameter, each question keyed to one or more audit types; periodically adding questions to the set of questions as new regulations or parameters are promulgated, storing on the server a set of sampling criteria comprising historical error rates, confidence intervals, and precision; automatically selecting an audit sample subset of records according to one or more selected audit types and applicable sampling criteria; automatically creating and transmitting to an auditor client workstation the audit sample subset of records and a checklist of questions keyed to the selected audit type; storing auditor""s answers to the checklist questions, including any exceptions, in an audit trail database on a server; storing any auditor recommendations pertaining to any of the exceptions in the audit trail database; and automatically generating management reports comprising the sampling criteria, an exception rate pertaining to the subset, a list of any loans in the subset which have exceptions and the exceptions pertaining to each such loan, and any recommendations for cure of each type of exception found in the sample subset. The audit sample subset generated by the system and method can be automatically requested from a file management system.
In some embodiments the records include both alphanumeric data and graphical images of loan documents, and the data and images for each loan in the sample subset are served up to the auditor""s client workstation.
The hyperlinks to the management reports can be automatically e-mailed to appropriate managers, optionally along with a time-limited password, and optionally sending reminders to managers to request a response, or notifications of past due responses. The audit reports containing the exceptions can be stored in an audit trail record, and managers"" responses to the exceptions can also be stored in that audit trail record.
A report as to in-process audits and time expended by auditors in auditing each subset can also be generated by the method and system of the invention. The system can also calculate auditor time per loan audit, number of audits per period, and quality score. Historical exception rate reports, trend reports based on current and historical audits, and systemic root cause reports can also be automatically generated.
Sampling criteria which are used by the system and method can include historical exception rates, confidence intervals, and precision.
When the managers respond to the exceptions raised by the auditors, the managers"" responses are known as rebuttals, and the system can record them and calculate rebuttal rates which can be used to evaluate the performance of auditors. The system also can be used to calculate historical trends of exceptions and the method can use the trends to determine changes in quality of loan origination and/or servicing activities. Such trend information can be very useful to management in improving the quality of the loan origination, servicing, and auditing functions.
The computer program itself, recorded or encoded in any computer-readable medium, which functions to control the system and perform the methods of the invention, is another aspect of the invention.